(Solved):     Aggregate supply and aggregate demand at various levels of aggregate expenditures ...

 

 

Aggregate supply and aggregate demand at various levels of aggregate expenditures for a fictitious country are shown in the graph below. The level of investment associated with each aggregate demand curve is provided in the accompanying table. The current equilibrium value of real GDP is \( \$ 840 \) billion. This is above the full-employment level of real GDP. The central bank decides that it wants to use monetary policy to change the level of investment in the economy. Its goal is to bring GDP back to the full-employment level of \( \$ 820 \) billion. After enacting monetary policy, the economy's level of investment decreases to \( \$ 20 \) billion. Equilibrium Real GDP and the Price Level Tools New GDP a. Use the graph above to show the economy's new level of real GDP. Instructions: Use the tool provided 'New GDP' to plot a point that shows the economy's new level of real GDP. b. According to the results of your graph, the central bank reduced the money supply by